Internationalization Strategies: Uppsala Model and Born Global Firms
International Strategy
International strategy refers to the management processes through which companies assess the changing conditions of the international environment and develop accurate organizational responses, according to their resources, resulting in going beyond the limits of the home market.
Uppsala Model
Most existing theories at that time toned down the problems of cultural differences and ignored the internal foundations needed so that companies could handle international activities.
Steps:
- No regular export activities.
- Export via independent representative.
- Establishment of a foreign sales subsidiary.
- Foreign production/manufacturing.
The theory focuses on four aspects that firms should face while going abroad:
- Market knowledge
- Market commitment
- Commitment decision
- Current activities
Types of Knowledge in the Uppsala Model
- Experiential knowledge: Enables employees to engage in direct knowledge acquisition through reflections on their actions.
- Foreign Business Knowledge: Knowledge about suppliers, clients, competitors, and the market.
- Foreign Institutional Knowledge: Government policies, bureaucratic regulations, and culture (firms’ practices, values, rules, etc.).
- Internationalization Knowledge: Describes the firm’s general understanding of how to do business outside the home country and includes an insight into the procedures that facilitate international operations.
Uppsala Model Limitations
- Experiential knowledge (strength and weakness) of the stages.
- Empirical demonstration about the choice of entry: not always corresponding to the sequential process.
- Overestimation of the similarities between neighboring countries: “illusions of similarities”.
- The model assumes risk aversion of managers, but there are others that are more prone to risk-taking behavior.
- “Short-cuts” deriving from recruiting individuals or groups with valuable international knowledge from other companies.
- Possibility of acquiring knowledge from available objective data.
- Not valid for service industries.
Born Global Firms
A Born Global firm is one that, from its ‘birth’, globalizes rapidly without any preceding long-term internationalization period.
- Born global firms begin with a borderless worldview and immediately develop strategies to expand themselves abroad.
- Born global firms have many distinctive features that allow them to start and thrive in the international arena.
- They begin exporting their goods within a couple of years after their founding and may even export a quarter or more of their total production.
- Top management tends to view the world as their marketplace from the very beginning and use their aggressive entrepreneurial mindsets to pursue international markets immediately.
- Tendency to employ differentiation strategies so as to make a niche for themselves internationally. Because of specialized resources, born global firms can offer specialized and customized products, satisfying a market that is too small to interest larger firms.
Born global firms are of special interest not because of the size of these organizations, but by the age at which the firm ventures into foreign markets.
Born global firms are entirely unique from other major international organizations because they are born doing business abroad.